The following article will look at the wisdom of some of the top investors. All of them are billionaires. Wealth creation has a lot to do with a combination of wisdom and discipline plus learning from those who have advised others how to create wealth.
Some media can mislead people Media can encourage you to invest, or discourage you. A few columnists only seem to offer negative predictions to their reader.
When markets offer bargain prices Warren Buffet, the billionaire is known as one of the wisest investors of all time. He indicates that an investor simply needs self-discipline: “We have to be more disciplined than the rest.” He also notes that those that are fearful can become stuck in neutral and do not progress in creating wealth, whereas those that invest look for opportunities in the markets.
Investors think opposite to the crowd notes Buffet: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” If everyone is fearful, it is generally a good time to buy investments because the value is better—fund units may be at lower prices in many sectors.
It makes sense to buy investments that are at bargain prices (for a fund investor this means buying at lower unit values). Often positive viewpoints offered by seasoned investors may go unnoticed, or simply be filtered out by negative doomsayers that can paralyze an action plan to invest for years. The media frequently offers bad news.
When investment prices rise Avoid missing opportunities to invest. If the market becomes bullish, rising up in value, a procrastinator can miss what is actually occurring. The Canadian S&P/TSX Composite Index value rose rapidly from its low of 7,590 in 2009, to 15,400 in 2015, more than doubling its value. Source: Google Finance
Professional fund managers understand the wisdom of Peter Lynch, another wise investor: “If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” Even positive media and rising market momentum can conflict with fearful notions one believes about investing if there is not a professional to guide us in our decisions. Peter Lynch has spent his professional lifetime investing. Investing is not like buying a ticket in the lottery.
“Although it’s easy to forget sometimes, a share is not a lottery ticket. It’s part-ownership of a business.” Peter Lynch
Avoid selling when the market is unpredictable Markets are never predictable. They move in relation to the market cycles, government intervention such as the US Fed’s low-interest rate debate, wars, job statistics and even bad weather. Media can create a lot of emotion and sometimes panic. If someone sold their investments too early due to fear (for example in the 2008-9 debt crisis), they would have lost the potential for the market turnaround when it entered a long bull market phase of appreciating gains. Emotional overreaction can cause an investor to lose money.
“Investing is the intersection of economics and psychology.”
Seth Klarman
Aside from considering taxation, an investment with either a gain or a loss, once sold, ends any future potential of that investment rising in future value. To avoid this mindset one should have a disciplined written plan worked out with an investment advisor for buying and or selling investments at the right time without fear.
“Based on my own personal experience—both as an investor in recent years and an expert witness in years past—rarely do more than three or four variables really count. Everything else is noise.” Martin Whitman, Investor
Avoid getting stuck on one viewpoint “Anchoring” an investment viewpoint occurs when someone assigns a reference number, like a 52-week high or low, to compare a price of an investment fund’s unit value. Past price movements are poor predictors of future price performance. When you invest for the long-term for retirement, very often only seasoned investors such as fund managers see the big picture. Joe Grenblatt knows that not everyone has the skill to understand the underlying value of an investment:
“But it’s critical that you understand why the market isn’t seeing the value you do. The back and forth that goes on in the investment process helps you get at that.” Joe Grenblatt
Get professional help People are very busy and put off investing – they simply procrastinate. We generally need some professional guidance and motivation to begin and stick to investing according to a written plan. If your circumstances change, your plan can be tweaked with the help of your advisor. An investor can refer to written investment goals that align with the person’s risk tolerance, with well-established goals (short-, medium- and long-term).
Let professionals help you form your investor style that fits your risk profile. With the help of an advisor, this agreed-to plan is important to create mutually with one’s partner/spouse, to avoid differences and stay on track if a doubt arises.